Major Drilling Group International Inc. (TSX: MDI), a leading
provider of specialized drilling services to the mining sector
(“Major Drilling” or the “Company”), today reported results for its
third quarter of fiscal year 2021, ended January 31, 2021.
Highlights
- Revenue up 23% from Q3 2020, driven primarily by increased gold
drilling activity
- EBITDA (1) up 226% compared to same period last year, despite
heavy start-up costs
- Improved net cash position (2) by $6.6 million to $14.2
million
- Increased training and recruiting efforts well under way, in
anticipation of increased demand in Q4 and beyond
“We are pleased by the level of activity
generated this quarter, despite the anticipated cyclicality of
seasonal shutdown. November was a particularly good month and
continued the progression we experienced in the previous quarter.
December saw the usual reduction in operational activity due to
holiday shutdowns, while January got off to a quicker start than
previous years. These factors drove the increase in revenue for the
quarter and provide strong indication that we are moving into a
mining upcycle,” said Denis Larocque, President and CEO of Major
Drilling. “Margins, as is usual for this quarter, were impacted by
substantial annual maintenance and overhaul work over the holiday
period. Additionally, the Company incurred significant training,
mobilization and setup costs to meet the pickup of activity and
increased demand for services expected in the fourth
quarter.”
“An increase in gold exploration spend by both
seniors and juniors is the main driver of the initial pickup in
activity, with 90 percent of the revenue increase coming from gold
projects. Copper prices have just recently seen a surge, which
should also translate into more exploration activity in the near
future as mining companies seek to replenish depleting
reserves.”
“Our financial position remains strong and our
balance sheet flexible, with net cash of $14.2 million, an
improvement of $6.6 million during the quarter,” said Ian Ross, CFO
of Major Drilling. “We spent $5.1 million on capital expenditures
this quarter, adding 3 underground rigs and related support
equipment, while disposing of 14 older, less efficient rigs,
bringing the total rig count to 590. We expect capital expenditures
to increase next quarter in anticipation of a busy calendar year
2021, and to respond to current growth opportunities in certain
markets.”
“The increase in industry activity has once
again raised questions around the availability of skilled labour,
particularly in North America,” observed Mr. Larocque.
“To mitigate concerns over crew staffing, we have stepped up our
training efforts around the world and have reinstated many of the
initiatives that proved successful in the last industry upturn.
Additional trainees are being assigned to rigs and retention
programs are being reinstated. In North America, we have increased
efforts across our training centers with goals to improve our
retention rate for new hires and to qualify candidates for our
driller-trainee programs. Wage increases will be applied in certain
regions to retain and attract the most experienced drillers, and to
ensure our high-quality customer service is maintained as
competition heats up.”
“Looking ahead to our fourth quarter and fiscal
2022, we are pleased to share a positive outlook. We continue to
see a noticeable increase in inquiries from all categories of
customers, and if their plans progress as advertised, we expect to
see utilization rates continue to improve as crews become
available. Although the shortage of experienced drill crews will
put temporary pressure on labour costs and productivity, especially
in our most active markets, we expect the wider industry shortages
to continue to drive pricing improvements and expedite margin
recovery.”
In millions of Canadian dollars(except earnings per share) |
|
Q3 2021 |
|
|
Q3 2020 |
|
|
YTD 2021 |
|
|
YTD 2020 |
|
Revenue |
|
$ |
100.4 |
|
|
$ |
81.7 |
|
|
$ |
304.0 |
|
|
$ |
320.4 |
|
Gross margin |
|
|
11.0 |
% |
|
|
6.3 |
% |
|
|
16.1 |
% |
|
|
16.0 |
% |
Adjusted gross margin (1) |
|
|
20.3 |
% |
|
|
17.6 |
% |
|
|
25.5 |
% |
|
|
24.7 |
% |
EBITDA (1) |
|
|
8.7 |
|
|
|
2.7 |
|
|
|
42.0 |
|
|
|
41.1 |
|
As percentage of revenue |
|
|
8.7 |
% |
|
|
3.3 |
% |
|
|
13.8 |
% |
|
|
12.8 |
% |
Net earnings (loss) |
|
|
(1.5 |
) |
|
|
(9.9 |
) |
|
|
7.7 |
|
|
|
3.3 |
|
Earnings (loss) per share |
|
|
(0.02 |
) |
|
|
(0.12 |
) |
|
|
0.10 |
|
|
|
0.04 |
|
(1) See
“Non-IFRS Financial
Measures” (2) Net
cash position (net of debt, excluding lease liabilities reported
under IFRS16 Leases)
Third Quarter Ended January 31,
2021
Total revenue for the quarter was $100.4
million, up 23% from revenue of $81.7 million recorded in the same
quarter last year. The unfavourable foreign exchange translation
impact on revenue for the quarter, when comparing to the effective
rates for the same period last year, was approximately $2.5
million, with a minimal impact on net earnings as expenditures in
foreign jurisdictions tend to be in the same currency as
revenue.
Revenue for the quarter from Canada - U.S.
drilling operations increased by 48.7% to $56.8 million, compared
to the same period last year. This region saw an influx in junior
activity as well as extended programs from seniors/intermediates in
December and early start-ups in January.
South and Central American revenue increased by
13.0% to $21.8 million for the quarter, compared to the same
quarter last year. This region continued its slow recovery from
COVID-19 and was also assisted by early start-ups in January.
Asian and African revenue decreased by 9.9% to
$21.8 million, compared to the same period last year. Despite a
strong performance in Mongolia in the quarter, Southern Africa
faced continued challenges from COVID-19 that negatively impacted
the region.
Gross margin percentage for the quarter was
11.0%, compared to 6.3% for the same period last year. Depreciation
expense totaling $9.3 million is included in direct costs for the
current quarter, versus $9.2 million in the same quarter last year.
Adjusted gross margin, which excludes depreciation expense, was
20.3% for the quarter, compared to 17.6% for the same period last
year. Margins were impacted by increased training costs, seasonal
maintenance and ramp-up costs due to quick start-ups in
January.
General and administrative costs were $11.7
million, a decrease of $1.0 million compared to the same quarter
last year. Reduced travel continues to drive the decrease in
general and administrative costs, as compared to the previous year,
as well as favourable foreign exchange impacts in certain
jurisdictions. Travel restrictions will remain in place until a
time when it can be resumed in a safe and responsible manner.
The income tax provision for the quarter was nil
compared to an expense of $0.3 million for the prior year period.
The income tax for the quarter was impacted by non-deductible
expenses and non-tax affected losses in certain regions, while
incurring taxes in profitable branches.
Net loss was $1.5 million or $0.02 per share
($0.02 per share diluted) for the quarter, compared to a net loss
of $9.9 million or $0.12 per share ($0.12 per share diluted) for
the prior year quarter.
Non-IFRS Financial Measures
The Company’s financial data has been prepared
in accordance with IFRS, with the exception of certain financial
measures detailed below. The Company believes these non-IFRS
financial measures are key, for both management and investors, in
evaluating performance at a consolidated level and are commonly
reported and widely used by investors and lending institutions as
indicators of a company’s operating performance and ability to
incur and service debt, and as a valuation metric. These measures
do not have a standardized meaning prescribed by IFRS and therefore
may not be comparable to similarly titled measures presented by
other publicly traded companies and should not be construed as an
alternative to other financial measures determined in accordance
with IFRS.
Adjusted gross profit/margin - excludes
depreciation expense:
(in $000s CAD) |
|
Q3 2021 |
|
|
Q3 2020 |
|
|
YTD 2021 |
|
|
YTD 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
100,387 |
|
|
$ |
81,719 |
|
|
$ |
303,959 |
|
|
$ |
320,360 |
|
Direct costs |
|
|
89,329 |
|
|
|
76,552 |
|
|
|
254,924 |
|
|
|
269,118 |
|
Less: depreciation |
|
|
(9,306 |
) |
|
|
(9,243 |
) |
|
|
(28,481 |
) |
|
|
(27,876 |
) |
Adjusted gross profit |
|
|
20,364 |
|
|
|
14,410 |
|
|
|
77,516 |
|
|
|
79,118 |
|
Adjusted gross margin |
|
|
20.3 |
% |
|
|
17.6 |
% |
|
|
25.5 |
% |
|
|
24.7 |
% |
EBITDA - earnings before interest, taxes, depreciation,
amortization and restructuring charge:
(in $000s CAD) |
|
Q3 2021 |
|
|
Q3 2020 |
|
|
YTD 2021 |
|
|
YTD 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
|
$ |
(1,467 |
) |
|
$ |
(9,947 |
) |
|
$ |
7,690 |
|
|
$ |
3,345 |
|
Finance costs |
|
|
337 |
|
|
|
293 |
|
|
|
961 |
|
|
|
716 |
|
Income tax provision |
|
|
26 |
|
|
|
280 |
|
|
|
3,263 |
|
|
|
5,294 |
|
Depreciation and
amortization |
|
|
9,853 |
|
|
|
9,940 |
|
|
|
30,048 |
|
|
|
29,629 |
|
Restructuring charge |
|
|
- |
|
|
|
2,116 |
|
|
|
- |
|
|
|
2,116 |
|
EBITDA |
|
$ |
8,749 |
|
|
$ |
2,682 |
|
|
$ |
41,962 |
|
|
$ |
41,100 |
|
Forward-Looking Statements
This news release includes certain information
that may constitute “forward-looking information” under applicable
Canadian securities legislation. All statements, other than
statements of historical facts, included in this news release that
address future events, developments or performance that the Company
expects to occur (including management’s expectations regarding the
Company’s objectives, strategies, financial condition, results of
operations, cash flows and businesses) are forward-looking
statements. Forward-looking statements are typically identified by
future or conditional verbs such as “outlook”, “believe”,
“anticipate”, “estimate”, “project”, “expect”, “intend”, “plan”,
and terms and expressions of similar import. All forward-looking
information in this news release is qualified by this cautionary
note.
Forward-looking information is necessarily based
upon various estimates and assumptions including, without
limitation, the expectations and beliefs of management related to
the factors set forth below. While these factors and assumptions
are considered reasonable by the Company as at the date of this
document in light of management’s experience and perception of
current conditions and expected developments, these statements are
inherently subject to significant business, economic and
competitive uncertainties and contingencies. Known and unknown
factors could cause actual results to differ materially from those
projected in the forward-looking statements and undue reliance
should not be placed on such statements and information.
Such forward-looking statements are subject to a
number of risks and uncertainties that include, but are not
limited to: the level of activity in the mining industry and the
demand for the Company’s services; the Canadian and international
economic environments; the Company’s dependence on key customers;
the level of funding for the Company’s clients (particularly for
junior mining companies); implications of the COVID-19 pandemic;
competitive pressures; exposure to currency movements (which can
affect the Company’s revenue in Canadian dollars); the geographic
distribution of the Company’s operations; the impact of operational
changes; changes in jurisdictions in which the Company operates
(including changes in regulation); failure by counterparties to
fulfill contractual obligations; as well as other risk factors
described under “General Risks and Uncertainties” in the Company’s
Annual Information Form for the year ended April 30, 2020,
available on the SEDAR website at www.sedar.com. Should one or more
risk, uncertainty, contingency or other factor materialize or
should any factor or assumption prove incorrect, actual results
could vary materially from those expressed or implied in the
forward-looking information.
Forward-looking statements made in this document
are made as of the date of this document and the Company disclaims
any intention and assumes no obligation to update any
forward-looking statement, even if new information becomes
available, as a result of future events or for any other reasons,
except as required by applicable securities laws.
About Major Drilling
Major Drilling Group International Inc. is one
of the world’s largest drilling services companies primarily
serving the mining industry. Established in 1980, Major Drilling
has over 1,000 years of combined experience and expertise within
its management team alone. The Company maintains field operations
and offices in Canada, the United States, Mexico, South America,
Asia, and Africa. Major Drilling provides a complete suite of
drilling services including surface and underground coring,
directional, reverse circulation, sonic, geotechnical,
environmental, water-well, coal-bed methane, shallow gas,
underground percussive/longhole drilling, surface drill and blast,
and a variety of mine services.
Webcast/Conference Call Information
Major Drilling Group International Inc. will
provide a simultaneous webcast and conference call to discuss its
quarterly results on Friday, March 5, 2021 at 9:00 AM (EST). To
access the webcast, which includes a slide presentation, please go
to the investors/webcast section of Major Drilling’s website at
www.majordrilling.com and click on the link. Please note that this
is listen-only mode.
To participate in the conference call, please
dial 416-340-2217, participant passcode 2861327# and ask for Major
Drilling’s Third Quarter Results Conference Call. To ensure your
participation, please call in approximately five minutes prior to
the scheduled start of the call.
For those unable to participate, a taped
rebroadcast will be available approximately one hour after the
completion of the call until midnight, Monday, April 5, 2021. To
access the rebroadcast, dial 905-694-9451 and enter the passcode
6477107#. The webcast will also be archived for one year and can be
accessed on the Major Drilling website at
www.majordrilling.com.
For further information:Ian Ross, Chief
Financial OfficerTel: (506) 857-8636Fax: (506)
857-9211ir@majordrilling.com
|
Major Drilling Group International Inc. |
Interim Condensed Consolidated Statements of
Operations |
(in thousands of Canadian dollars, except per share
information) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
January 31 |
|
|
January 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
REVENUE |
$ |
100,387 |
|
|
$ |
81,719 |
|
|
$ |
303,959 |
|
|
$ |
320,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DIRECT COSTS (note
6) |
|
89,329 |
|
|
|
76,552 |
|
|
|
254,924 |
|
|
|
269,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT |
|
11,058 |
|
|
|
5,167 |
|
|
|
49,035 |
|
|
|
51,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
11,742 |
|
|
|
12,671 |
|
|
|
34,536 |
|
|
|
36,962 |
|
Other expenses |
|
862 |
|
|
|
33 |
|
|
|
3,341 |
|
|
|
2,766 |
|
(Gain) loss on disposal of property, plant and equipment |
|
(462 |
) |
|
|
(27 |
) |
|
|
(451 |
) |
|
|
(171 |
) |
Foreign exchange (gain) loss |
|
20 |
|
|
|
(252 |
) |
|
|
(305 |
) |
|
|
214 |
|
Finance costs |
|
337 |
|
|
|
293 |
|
|
|
961 |
|
|
|
716 |
|
Restructuring charge (note 11) |
|
- |
|
|
|
2,116 |
|
|
|
- |
|
|
|
2,116 |
|
|
|
12,499 |
|
|
|
14,834 |
|
|
|
38,082 |
|
|
|
42,603 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) BEFORE
INCOME TAX |
|
(1,441 |
) |
|
|
(9,667 |
) |
|
|
10,953 |
|
|
|
8,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX PROVISION
(RECOVERY) (note 7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
896 |
|
|
|
(588 |
) |
|
|
4,760 |
|
|
|
4,859 |
|
Deferred |
|
(870 |
) |
|
|
868 |
|
|
|
(1,497 |
) |
|
|
435 |
|
|
|
26 |
|
|
|
280 |
|
|
|
3,263 |
|
|
|
5,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
(LOSS) |
$ |
(1,467 |
) |
|
$ |
(9,947 |
) |
|
$ |
7,690 |
|
|
$ |
3,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS (LOSS) PER
SHARE (note 8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
|
$ |
0.10 |
|
|
$ |
0.04 |
|
Diluted |
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
|
$ |
0.10 |
|
|
$ |
0.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Major Drilling Group International Inc. |
Interim Condensed Consolidated Statements of Comprehensive
Earnings (Loss) |
(in thousands of Canadian dollars) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
January 31 |
|
|
January 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
(LOSS) |
$ |
(1,467 |
) |
|
$ |
(9,947 |
) |
|
$ |
7,690 |
|
|
$ |
3,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE
EARNINGS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items that may be reclassified
subsequently to profit or loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on foreign currency translations |
|
(9,405 |
) |
|
|
(500 |
) |
|
|
(20,210 |
) |
|
|
(8,639 |
) |
Unrealized gain (loss) on derivatives (net of tax) |
|
122 |
|
|
|
(60 |
) |
|
|
1,835 |
|
|
|
876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE EARNINGS
(LOSS) |
$ |
(10,750 |
) |
|
$ |
(10,507 |
) |
|
$ |
(10,685 |
) |
|
$ |
(4,418 |
) |
|
Major Drilling Group International Inc. |
Interim Condensed Consolidated Statements of Changes in
Equity |
For the nine months ended January 31, 2021 and
2020 |
(in thousands of Canadian dollars) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
earnings |
|
|
Other |
|
|
Share-based |
|
|
Foreign currency |
|
|
|
|
|
|
Share capital |
|
|
(deficit) |
|
|
reserves |
|
|
payments reserve |
|
|
translation reserve |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT MAY 1,
2019* |
$ |
241,264 |
|
|
$ |
29,020 |
|
|
$ |
(570 |
) |
|
$ |
14,503 |
|
|
$ |
78,783 |
|
|
$ |
363,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share issue |
|
1,925 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,925 |
|
Share-based compensation |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
194 |
|
|
|
- |
|
|
|
194 |
|
Stock options expired |
|
- |
|
|
|
3,740 |
|
|
|
- |
|
|
|
(3,740 |
) |
|
|
- |
|
|
|
- |
|
|
|
243,189 |
|
|
|
32,760 |
|
|
|
(570 |
) |
|
|
10,957 |
|
|
|
78,783 |
|
|
|
365,119 |
|
Comprehensive
earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
- |
|
|
|
3,345 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,345 |
|
Unrealized gain (loss) on foreign currency translations |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,639 |
) |
|
|
(8,639 |
) |
Unrealized gain (loss) on derivatives |
|
- |
|
|
|
- |
|
|
|
876 |
|
|
|
- |
|
|
|
- |
|
|
|
876 |
|
Total comprehensive earnings
(loss) |
|
- |
|
|
|
3,345 |
|
|
|
876 |
|
|
|
- |
|
|
|
(8,639 |
) |
|
|
(4,418 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT JANUARY
31, 2020 |
$ |
243,189 |
|
|
$ |
36,105 |
|
|
$ |
306 |
|
|
$ |
10,957 |
|
|
$ |
70,144 |
|
|
$ |
360,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT MAY 1,
2020 |
$ |
243,189 |
|
|
$ |
(35,691 |
) |
|
$ |
(611 |
) |
|
$ |
8,519 |
|
|
$ |
81,640 |
|
|
$ |
297,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options |
|
58 |
|
|
|
- |
|
|
|
- |
|
|
|
(17 |
) |
|
|
- |
|
|
|
41 |
|
Share-based compensation |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
222 |
|
|
|
- |
|
|
|
222 |
|
Stock options expired |
|
- |
|
|
|
3,525 |
|
|
|
- |
|
|
|
(3,525 |
) |
|
|
- |
|
|
|
- |
|
|
|
243,247 |
|
|
|
(32,166 |
) |
|
|
(611 |
) |
|
|
5,199 |
|
|
|
81,640 |
|
|
|
297,309 |
|
Comprehensive
earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
- |
|
|
|
7,690 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,690 |
|
Unrealized gain (loss) on foreign currency translations |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(20,210 |
) |
|
|
(20,210 |
) |
Unrealized gain (loss) on derivatives |
|
- |
|
|
|
- |
|
|
|
1,835 |
|
|
|
- |
|
|
|
- |
|
|
|
1,835 |
|
Total comprehensive earnings
(loss) |
|
- |
|
|
|
7,690 |
|
|
|
1,835 |
|
|
|
- |
|
|
|
(20,210 |
) |
|
|
(10,685 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AS AT JANUARY
31, 2021 |
$ |
243,247 |
|
|
$ |
(24,476 |
) |
|
$ |
1,224 |
|
|
$ |
5,199 |
|
|
$ |
61,430 |
|
|
$ |
286,624 |
|
*Opening balances have been allocated to include
expired or forfeited stock options of $5,744, previously recorded
in share-based payments reserve, in retained earnings (deficit),
consistent with current year presentation.
|
Major Drilling Group International Inc. |
Interim Condensed Consolidated Statements of Cash
Flows |
(in thousands of Canadian dollars) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
January 31 |
|
|
January 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income
tax |
$ |
(1,441 |
) |
|
$ |
(9,667 |
) |
|
$ |
10,953 |
|
|
$ |
8,639 |
|
Operating items not involving
cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (note 6) |
|
9,853 |
|
|
|
9,940 |
|
|
|
30,048 |
|
|
|
29,629 |
|
(Gain) loss on disposal of property, plant and equipment |
|
(462 |
) |
|
|
(27 |
) |
|
|
(451 |
) |
|
|
(171 |
) |
Share-based compensation |
|
73 |
|
|
|
53 |
|
|
|
222 |
|
|
|
194 |
|
Restructuring charge (non-cash portion) (note 11) |
|
- |
|
|
|
1,503 |
|
|
|
- |
|
|
|
1,503 |
|
Finance costs recognized in
earnings before income tax |
|
337 |
|
|
|
293 |
|
|
|
961 |
|
|
|
716 |
|
|
|
8,360 |
|
|
|
2,095 |
|
|
|
41,733 |
|
|
|
40,510 |
|
Changes in non-cash operating
working capital items |
|
5,739 |
|
|
|
10,675 |
|
|
|
(6,803 |
) |
|
|
6,043 |
|
Finance costs paid |
|
(337 |
) |
|
|
(293 |
) |
|
|
(961 |
) |
|
|
(716 |
) |
Income taxes paid |
|
(833 |
) |
|
|
(1,581 |
) |
|
|
(3,698 |
) |
|
|
(6,185 |
) |
Cash flow from (used in)
operating activities |
|
12,929 |
|
|
|
10,896 |
|
|
|
30,271 |
|
|
|
39,652 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayment of lease
liabilities |
|
(169 |
) |
|
|
(446 |
) |
|
|
(967 |
) |
|
|
(1,290 |
) |
Repayment of long-term
debt |
|
(251 |
) |
|
|
(252 |
) |
|
|
(35,752 |
) |
|
|
(808 |
) |
Issuance of common shares due
to exercise of stock options |
|
17 |
|
|
|
- |
|
|
|
41 |
|
|
|
- |
|
Cash flow from (used in)
financing activities |
|
(403 |
) |
|
|
(698 |
) |
|
|
(36,678 |
) |
|
|
(2,098 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business acquisitions (net of
cash acquired) (note 10) |
|
- |
|
|
|
(13,945 |
) |
|
|
- |
|
|
|
(13,945 |
) |
Acquisition of property, plant
and equipment (note 5) |
|
(5,069 |
) |
|
|
(8,784 |
) |
|
|
(20,613 |
) |
|
|
(24,892 |
) |
Proceeds from disposal of
property, plant and equipment |
|
541 |
|
|
|
72 |
|
|
|
1,033 |
|
|
|
800 |
|
Cash flow from (used in)
investing activities |
|
(4,528 |
) |
|
|
(22,657 |
) |
|
|
(19,580 |
) |
|
|
(38,037 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate
changes |
|
(1,612 |
) |
|
|
(183 |
) |
|
|
(2,495 |
) |
|
|
(145 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN
CASH |
|
6,386 |
|
|
|
(12,642 |
) |
|
|
(28,482 |
) |
|
|
(628 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, BEGINNING OF THE PERIOD |
|
23,565 |
|
|
|
39,380 |
|
|
|
58,433 |
|
|
|
27,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS, END OF THE PERIOD |
$ |
29,951 |
|
|
$ |
26,738 |
|
|
$ |
29,951 |
|
|
$ |
26,738 |
|
|
Major Drilling Group International Inc. |
Interim Condensed Consolidated Balance Sheets |
As at January 31, 2021 and April 30, 2020 |
(in thousands of Canadian dollars) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2021 |
|
|
April 30, 2020 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
29,951 |
|
|
$ |
58,433 |
|
Trade and other receivables |
|
80,059 |
|
|
|
71,641 |
|
Income tax receivable |
|
3,877 |
|
|
|
4,350 |
|
Inventories |
|
90,016 |
|
|
|
99,823 |
|
Prepaid expenses |
|
5,598 |
|
|
|
4,497 |
|
|
|
209,501 |
|
|
|
238,744 |
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND
EQUIPMENT (note 5) |
|
146,992 |
|
|
|
165,103 |
|
|
|
|
|
|
|
|
|
RIGHT-OF-USE
ASSETS |
|
3,982 |
|
|
|
3,803 |
|
|
|
|
|
|
|
|
|
DEFERRED INCOME TAX
ASSETS |
|
9,572 |
|
|
|
9,613 |
|
|
|
|
|
|
|
|
|
GOODWILL |
|
7,708 |
|
|
|
7,708 |
|
|
|
|
|
|
|
|
|
INTANGIBLE
ASSETS |
|
663 |
|
|
|
946 |
|
|
|
|
|
|
|
|
|
|
$ |
378,418 |
|
|
$ |
425,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES |
|
|
|
|
|
|
|
Trade and other payables |
$ |
56,315 |
|
|
$ |
55,858 |
|
Income tax payable |
|
1,721 |
|
|
|
926 |
|
Current portion of lease liabilities |
|
1,168 |
|
|
|
1,121 |
|
Current portion of long-term debt |
|
608 |
|
|
|
1,024 |
|
|
|
59,812 |
|
|
|
58,929 |
|
|
|
|
|
|
|
|
|
LEASE
LIABILITIES |
|
2,860 |
|
|
|
2,701 |
|
|
|
|
|
|
|
|
|
CONTINGENT
CONSIDERATION |
|
1,807 |
|
|
|
1,807 |
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT |
|
15,131 |
|
|
|
50,333 |
|
|
|
|
|
|
|
|
|
DEFERRED INCOME TAX
LIABILITIES |
|
12,184 |
|
|
|
15,101 |
|
|
|
91,794 |
|
|
|
128,871 |
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY |
|
|
|
|
|
|
|
Share capital |
|
243,247 |
|
|
|
243,189 |
|
Retained earnings (deficit) |
|
(24,476 |
) |
|
|
(35,691 |
) |
Other reserves |
|
1,224 |
|
|
|
(611 |
) |
Share-based payments reserve |
|
5,199 |
|
|
|
8,519 |
|
Foreign currency translation reserve |
|
61,430 |
|
|
|
81,640 |
|
|
|
286,624 |
|
|
|
297,046 |
|
|
|
|
|
|
|
|
|
|
$ |
378,418 |
|
|
$ |
425,917 |
|
|
|
|
|
|
|
|
|
MAJOR DRILLING GROUP INTERNATIONAL
INC.NOTES TO INTERIM CONDENSED CONSOLIDATED
FINANCIAL STATEMENTSFOR THE THREE AND NINE MONTHS
ENDED JANUARY 31, 2021 AND 2020 (UNAUDITED)(in
thousands of Canadian dollars, except per share
information)
1. NATURE
OF ACTIVITIES
Major Drilling Group International Inc. (the
“Company”) is incorporated under the Canada Business Corporations
Act and has its head office at 111 St. George Street, Suite 100,
Moncton, NB, Canada. The Company’s common shares are listed on the
Toronto Stock Exchange (“TSX”). The principal source of revenue
consists of contract drilling for companies primarily involved in
mining and mineral exploration. The Company has operations in
Canada, the United States, Mexico, South America, Asia, and
Africa.
2. BASIS
OF PRESENTATION
Statement of complianceThese
Interim Condensed Consolidated Financial Statements have been
prepared in accordance with IAS 34 Interim Financial Reporting
(“IAS 34”) as issued by the International Accounting Standards
Board (“IASB”) and using the accounting policies as outlined in the
Company’s annual Consolidated Financial Statements for the year
ended April 30, 2020.
On March 4, 2021, the Board of Directors
authorized the financial statements for issue.
Basis of consolidationThese
Interim Condensed Consolidated Financial Statements incorporate the
financial statements of the Company and entities controlled by the
Company. Control is achieved when the Company is exposed or has
rights to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee.
The results of subsidiaries acquired or disposed
of during the period are included in the Consolidated Statements of
Operations from the effective date of acquisition or up to the
effective date of disposal, as appropriate.
Intra-group transactions, balances, income and
expenses are eliminated on consolidation, where appropriate.
Basis of preparationThese
Interim Condensed Consolidated Financial Statements have been
prepared based on the historical cost basis, except for certain
financial instruments that are measured at fair value, using the
same accounting policies and methods of computation as presented in
the Company’s annual Consolidated Financial Statements for the year
ended April 30, 2020.
3. KEY
SOURCES OF ESTIMATION UNCERTAINTY AND CRITICAL ACCOUNTING
JUDGMENTS
The preparation of financial statements, in
conformity with International Financial Reporting Standards
(“IFRS”), requires management to make judgments, estimates and
assumptions that are not readily apparent from other sources, which
affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates.
Depending on the severity and duration of
disruptions caused by the COVID-19 pandemic, results could be
impacted in future periods. It is not possible at this time to
estimate the magnitude of such potential future impacts.
The estimates and underlying assumptions are
reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised, if the
revision affects only that period, or in the period of the revision
and future periods, if the revision affects both current and future
periods. Significant areas requiring the use of management
estimates relate to the useful lives of property, plant and
equipment for depreciation purposes, property, plant and
equipment and inventory valuation, determination of income and
other taxes, assumptions used in the compilation of share-based
payments, fair value of assets acquired and liabilities assumed in
business acquisitions, amounts recorded as accrued liabilities,
contingent consideration and allowance for doubtful accounts, and
impairment testing of goodwill and intangible assets.
The Company applied judgment in determining the
functional currency of the Company and its subsidiaries, the
determination of cash-generating units (“CGUs”), the degree of
componentization of property, plant and equipment, the recognition
of provisions and accrued liabilities, and the determination of the
probability that deferred income tax assets will be realized from
future taxable earnings.
4. SEASONALITY
OF OPERATIONS
The third quarter (November to January) is
normally the Company’s weakest quarter due to the shutdown of
mining and exploration activities, often for extended periods over
the holiday season.
5. PROPERTY,
PLANT AND EQUIPMENT
Capital expenditures for the three and nine
months ended January 31, 2021 were $5,069 (2020 - $9,874) and
$20,613 (2020 - $25,982), respectively. The unpaid portion of
capital expenditures for the three and nine months ended January
31, 2020 was $1,090.
6. EXPENSES
BY NATURE
Direct costs by nature are as follows:
(in $000s CAD) |
Q3 2021 |
|
|
Q3 2020 |
|
|
YTD 2021 |
|
|
YTD 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
$ |
9,306 |
|
|
$ |
9,243 |
|
|
$ |
28,481 |
|
|
$ |
27,876 |
|
Employee benefit expenses |
|
39,032 |
|
|
|
30,771 |
|
|
|
110,738 |
|
|
|
112,754 |
|
Cost of inventory |
|
15,870 |
|
|
|
12,915 |
|
|
|
47,322 |
|
|
|
47,660 |
|
Other |
|
25,121 |
|
|
|
23,623 |
|
|
|
68,383 |
|
|
|
80,828 |
|
Direct
costs |
$ |
89,329 |
|
|
$ |
76,552 |
|
|
$ |
254,924 |
|
|
$ |
269,118 |
|
Depreciation and amortization expense recorded
in general and administrative expenses for the three and nine
months ended January 31, 2021 was $547 (2020 - $697) and $1,567
(2020 - $1,753), respectively.
7. INCOME
TAXES
The income tax provision for the period can be reconciled to
accounting earnings before income tax as follows:
|
Q3 2021 |
|
|
Q3 2020 |
|
|
YTD 2021 |
|
|
YTD 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income
tax |
$ |
(1,441 |
) |
|
$ |
(9,667 |
) |
|
$ |
10,953 |
|
|
$ |
8,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Canadian corporate
income tax rate |
|
27 |
% |
|
|
27 |
% |
|
|
27 |
% |
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax provision
based on statutory rate |
|
(389 |
) |
|
|
(2,610 |
) |
|
|
2,957 |
|
|
|
2,332 |
|
Non-recognition of tax benefits
related to losses |
|
485 |
|
|
|
949 |
|
|
|
1,847 |
|
|
|
1,321 |
|
Utilization of previously
unrecognized losses |
|
(62 |
) |
|
|
303 |
|
|
|
(1,615 |
) |
|
|
(280 |
) |
Other foreign taxes paid |
|
173 |
|
|
|
43 |
|
|
|
412 |
|
|
|
365 |
|
Rate variances in foreign
jurisdictions |
|
74 |
|
|
|
(316 |
) |
|
|
(158 |
) |
|
|
(477 |
) |
De-recognition of previously
recognized losses |
|
- |
|
|
|
1,505 |
|
|
|
- |
|
|
|
1,505 |
|
Permanent differences and
other |
|
(255 |
) |
|
|
406 |
|
|
|
(180 |
) |
|
|
528 |
|
Income tax provision recognized
in net earnings (loss) |
$ |
26 |
|
|
$ |
280 |
|
|
$ |
3,263 |
|
|
$ |
5,294 |
|
The Company periodically assesses its
liabilities and contingencies for all tax years open to audit based
upon the latest information available. For those matters where it
is probable that an adjustment will be made, the Company records
its best estimate of these tax liabilities, including related
interest charges. Inherent uncertainties exist in estimates of tax
contingencies due to changes in tax laws. While management believes
they have adequately provided for the probable outcome of these
matters, future results may include favourable or unfavourable
adjustments to these estimated tax liabilities in the period the
assessments are made, or resolved, or when the statutes of
limitations lapse.
8. EARNINGS
PER SHARE
All of the Company’s earnings are attributable
to common shares, therefore, net earnings is used in determining
earnings per share.
|
Q3 2021 |
|
|
Q3 2020 |
|
|
YTD 2021 |
|
|
YTD 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
(1,467 |
) |
|
$ |
(9,947 |
) |
|
$ |
7,690 |
|
|
$ |
3,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (000s) |
|
80,641 |
|
|
|
80,631 |
|
|
|
80,638 |
|
|
|
80,410 |
|
Diluted (000s) |
|
80,829 |
|
|
|
80,659 |
|
|
|
80,743 |
|
|
|
80,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
|
$ |
0.10 |
|
|
$ |
0.04 |
|
Diluted |
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
|
$ |
0.10 |
|
|
$ |
0.04 |
|
The calculation of diluted earnings per share
for the three and nine months ended January 31, 2021 excludes the
effect of 988,037 and 1,388,131 options, respectively (2020 -
2,513,791 and 2,845,241, respectively) as they were
anti‐dilutive.
The total number of shares outstanding on January 31, 2021 was
80,640,753 (2020 - 80,634,153).
9. SEGMENTED
INFORMATION
The Company’s operations are divided into the
following three geographic segments, corresponding to its
management structure: Canada - U.S.; South and Central America; and
Asia and Africa. The services provided in each of the reportable
segments are essentially the same. The accounting policies of the
segments are the same as those described in the Company’s annual
Consolidated Financial Statements for the year ended April 30,
2020. Management evaluates performance based on earnings from
operations in these three geographic segments before finance costs,
general corporate expenses and income taxes. Data relating to each
of the Company’s reportable segments is presented as follows:
|
Q3 2021 |
|
|
Q3 2020 |
|
|
YTD 2021 |
|
|
YTD 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada - U.S.* |
$ |
56,802 |
|
|
$ |
38,199 |
|
|
$ |
173,464 |
|
|
$ |
164,493 |
|
South and Central America |
|
21,820 |
|
|
|
19,322 |
|
|
|
62,928 |
|
|
|
81,793 |
|
Asia and Africa |
|
21,765 |
|
|
|
24,198 |
|
|
|
67,567 |
|
|
|
74,074 |
|
|
$ |
100,387 |
|
|
$ |
81,719 |
|
|
$ |
303,959 |
|
|
$ |
320,360 |
|
*Canada - U.S. includes revenue of $33,371 and
$20,963 for Canadian operations for the three months ended January
31, 2021 and 2020, respectively and $85,090 and $74,830 for the
nine months ended January 31, 2021 and 2020, respectively.
|
Q3 2021 |
|
|
Q3 2020 |
|
|
YTD 2021 |
|
|
YTD 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada - U.S. |
$ |
(1,864 |
) |
|
$ |
(5,262 |
) |
|
$ |
9,546 |
|
|
$ |
7,154 |
|
South and Central America |
|
(1,003 |
) |
|
|
(5,886 |
) |
|
|
(2,774 |
) |
|
|
(2,900 |
) |
Asia and Africa |
|
3,578 |
|
|
|
3,864 |
|
|
|
9,855 |
|
|
|
12,761 |
|
|
|
711 |
|
|
|
(7,284 |
) |
|
|
16,627 |
|
|
|
17,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
costs |
|
337 |
|
|
|
293 |
|
|
|
961 |
|
|
|
716 |
|
General corporate
expenses** |
|
1,815 |
|
|
|
2,090 |
|
|
|
4,713 |
|
|
|
7,660 |
|
Income tax |
|
26 |
|
|
|
280 |
|
|
|
3,263 |
|
|
|
5,294 |
|
|
|
2,178 |
|
|
|
2,663 |
|
|
|
8,937 |
|
|
|
13,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
(loss) |
$ |
(1,467 |
) |
|
$ |
(9,947 |
) |
|
$ |
7,690 |
|
|
$ |
3,345 |
|
**General corporate expenses include expenses
for corporate offices and stock options.
|
Q3 2021 |
|
|
Q3 2020 |
|
|
YTD 2021 |
|
|
YTD 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada - U.S. |
$ |
3,598 |
|
|
$ |
5,474 |
|
|
$ |
16,184 |
|
|
$ |
17,397 |
|
South and Central America |
|
255 |
|
|
|
1,729 |
|
|
|
1,039 |
|
|
|
3,302 |
|
Asia and Africa |
|
710 |
|
|
|
2,433 |
|
|
|
2,821 |
|
|
|
4,013 |
|
Unallocated and corporate assets |
|
506 |
|
|
|
238 |
|
|
|
569 |
|
|
|
1,270 |
|
Total capital
expenditures |
$ |
5,069 |
|
|
$ |
9,874 |
|
|
$ |
20,613 |
|
|
$ |
25,982 |
|
|
Q3 2021 |
|
|
Q3 2020 |
|
|
YTD 2021 |
|
|
YTD 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada - U.S. |
$ |
4,915 |
|
|
$ |
4,612 |
|
|
$ |
15,037 |
|
|
$ |
13,597 |
|
South and Central America |
|
2,965 |
|
|
|
3,486 |
|
|
|
9,365 |
|
|
|
10,925 |
|
Asia and Africa |
|
1,589 |
|
|
|
1,707 |
|
|
|
5,155 |
|
|
|
4,911 |
|
Unallocated and corporate assets |
|
384 |
|
|
|
135 |
|
|
|
491 |
|
|
|
196 |
|
Total depreciation and
amortization |
$ |
9,853 |
|
|
$ |
9,940 |
|
|
$ |
30,048 |
|
|
$ |
29,629 |
|
|
January 31, 2021 |
|
|
April 30, 2020 |
|
Identifiable assets |
|
|
|
|
|
|
|
Canada - U.S.* |
$ |
180,219 |
|
|
$ |
180,925 |
|
South and Central America |
|
94,982 |
|
|
|
129,748 |
|
Asia and Africa |
|
119,082 |
|
|
|
121,954 |
|
Unallocated and corporate assets (liabilities) |
|
(15,865 |
) |
|
|
(6,710 |
) |
Total identifiable
assets |
$ |
378,418 |
|
|
$ |
425,917 |
|
*Canada - U.S. includes property, plant and
equipment as at January 31, 2021 of $42,003 (April 30, 2020 -
$44,146) for Canadian operations.
10.
BUSINESS ACQUISITION
Norex Drilling Limited
Effective November 1, 2019, the Company acquired
all of the issued and outstanding shares of Norex Drilling Limited
(“Norex”).
The acquisition has been accounted for using the
acquisition method. Through this purchase, which allowed the
Company to gain a strong position to service its customers in both
surface and underground exploration drilling services in Northern
Ontario, the Company acquired 22 drill rigs, support equipment and
inventory, existing contracts and receivables, the operation’s
management team, and other employees, including experienced
drillers.
The purchase price for the transaction was $18.7
million, consisting of $14.0 million in cash (net of cash
acquired), $1.9 million in Major Drilling shares, a holdback of
$1.0 million and an additional payout of $1.8 million (discounted)
tied to performance. The maximum amount of the contingent
consideration is $2.5 million, with a payout date three years from
the effective date of November 1, 2019. Payment is contingent on
achieving EBITDA (earnings before interest, taxes, depreciation and
amortization) run rates above levels at the time of
acquisition.
Goodwill arising from this acquisition was equal
to the excess of the total consideration paid over the fair market
value of the net assets acquired and represents the benefit of
expected synergies, revenue growth, and future market
development.
The net assets acquired at fair value at acquisition were as
follows:
Net assets acquired |
|
|
|
|
|
Trade and other receivables |
|
$ |
4,865 |
|
|
Inventories |
|
|
1,762 |
|
|
Property, plant and
equipment |
|
|
8,217 |
|
|
Goodwill (not tax
deductible) |
|
|
7,708 |
|
|
Intangible assets |
|
|
1,135 |
|
|
Trade and other payables |
|
|
(3,385 |
) |
|
Deferred income tax
liabilities |
|
|
(1,625 |
) |
|
Total
assets |
|
$ |
18,677 |
|
|
Consideration |
|
|
|
|
|
Cash |
|
$ |
14,241 |
|
|
Holdback |
|
|
1,000 |
|
|
Contingent consideration |
|
|
1,807 |
|
|
Shares of Major Drilling |
|
|
1,925 |
|
|
Less: cash acquired |
|
|
(296 |
) |
|
Total
consideration |
|
$ |
18,677 |
|
|
Subsequent to the date of acquisition, the trade
and other receivables included in the above net assets acquired
have been fully collected.
The above consideration includes non-cash
investing activities, which are not reflected in the Interim
Condensed Consolidated Statements of Cash Flows, including the
issuance of 334,169 shares of Major Drilling at $5.76 for a total
of $1,925, contingent consideration of $1,807 (discounted) and a
holdback of $1,000.
The Company incurred acquisition-related costs
of $182 relating to external legal fees and due diligence costs.
These acquisition costs have been included in the other expenses
line of the Interim Condensed Consolidated Statements of
Operations.
The results of operations of Norex are included
in the Interim Condensed Consolidated Statements of Operations from
November 1, 2019.
11.
RESTRUCTURING CHARGE
During the previous year, the Company made the decision to close
its operations in Colombia.
These restructuring initiatives generated impairment losses
calculated based on the determination of the fair value of assets
less cost of disposal. Fair value was determined through the use of
industry knowledge.
The costs related to these initiatives, and recorded as part of
the restructuring charge, total $2,116 for the three and nine
months ended January 31, 2020. This amount consists of non-cash
charges totalling $1,503, including an impairment charge of $500
relating to property, plant and equipment and a write-down of
$1,003 to reduce inventory to net realizable value. Cash charges
include employee severance costs of $375 incurred to rationalize
the workforce, and $238 relating to the cost of winding down
operations.
12.
FINANCIAL INSTRUMENTS
Fair valueThe carrying values
of cash, trade and other receivables, demand credit facilities and
trade and other payables approximate their fair value due to the
relatively short period to maturity of the instruments. The
carrying value of long-term debt approximates its fair value as the
interest applicable is reflective of fair market rates.
Financial assets and liabilities measured at
fair value are classified and disclosed in one of the following
categories:
- Level 1 - quoted prices
(unadjusted) in active markets for identical assets or
liabilities;
- Level 2 - inputs other than quoted
prices included in level 1 that are observable for the assets or
liabilities, either directly (i.e., as prices) or indirectly (i.e.,
derived from prices); and
- Level 3 - inputs for the assets or
liabilities that are not based on observable market data
(unobservable inputs).
The Company’s derivatives are classified as
level 2 financial instruments. There were no transfers of amounts
between level 1, level 2 and level 3 financial instruments for the
quarter ended January 31, 2021.
The fair value hierarchy requires the use of
observable market inputs whenever such inputs exist. A financial
instrument is classified to the lowest level of the hierarchy
for which a significant input has been considered in measuring fair
value.
Credit riskAs at January 31,
2021, 83.5% (April 30, 2020 - 81.6%) of the Company’s trade
receivables were aged as current and 2.2% (April 30, 2020 - 2.0%)
of the trade receivables were impaired.
The movements in the allowance for impairment of
trade receivables during the nine and twelve month periods were as
follows:
|
|
January 31, 2021 |
|
|
April 30, 2020 |
|
|
|
|
|
|
|
|
|
|
Opening
balance |
|
$ |
1,226 |
|
|
$ |
863 |
|
Increase in impairment
allowance |
|
|
469 |
|
|
|
442 |
|
Recovery of amounts previously
impaired |
|
|
(115 |
) |
|
|
- |
|
Write-off charged against
allowance |
|
|
- |
|
|
|
(37 |
) |
Foreign exchange translation
differences |
|
|
(54 |
) |
|
|
(42 |
) |
Ending
balance |
|
$ |
1,526 |
|
|
$ |
1,226 |
|
Foreign currency riskAs at
January 31, 2021, the most significant carrying amounts of net
monetary assets or liabilities (which may include intercompany
balances with other subsidiaries) that: (i) are denominated in
currencies other than the functional currency of the respective
Company subsidiary; and (ii) cause foreign exchange rate exposure,
including the impact on earnings before income taxes (“EBIT”), if
the corresponding rate changes by 10%, are as follows:
|
|
Rate variance |
|
IDR/USD |
|
|
MNT/USD |
|
|
USD/AUD |
|
|
USD/BRL |
|
|
USD/CLP |
|
|
USD/CAD |
|
|
Other |
|
Net exposure on |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
monetary assets |
|
|
|
7,686 |
|
|
5,034 |
|
|
4,568 |
|
|
3,214 |
|
|
4,202 |
|
|
7,094 |
|
|
124 |
|
EBIT impact |
|
+/-10% |
|
854 |
|
|
559 |
|
|
508 |
|
|
357 |
|
|
467 |
|
|
788 |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity riskThe following
table details contractual maturities for the Company’s financial
liabilities:
|
|
1 year |
|
|
2-3 years |
|
|
4-5 years |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
$ |
56,315 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
56,315 |
|
Lease liabilities (interest
included) |
|
|
1,528 |
|
|
|
2,331 |
|
|
|
993 |
|
|
|
4,852 |
|
Contingent consideration
(undiscounted) |
|
|
- |
|
|
|
2,500 |
|
|
|
- |
|
|
|
2,500 |
|
Long-term debt (interest
included) |
|
|
1,096 |
|
|
|
16,301 |
|
|
|
- |
|
|
|
17,397 |
|
|
|
$ |
58,939 |
|
|
$ |
21,132 |
|
|
$ |
993 |
|
|
$ |
81,064 |
|
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